Understanding the Tuition and Fees
Tax Deduction

What Is It?

The Tuition and Fees Tax Deduction can reduce taxable income by as much as $4,000 in 2006. This deduction is taken as an adjustment to income, which means you can claim this deduction even if they do not itemize deductions on Schedule A of Form 1040. This deduction may benefit taxpayers who do not qualify for either the Hope or Lifetime Learning Education Tax Credits.
Up to $4,000 may be deducted from tuition and fees required for enrollment or attendance at an eligible postsecondary institution. Personal living and family expenses, including room and board, insurance, medical and transportation, are not deductible expenses.
The exact amount of the Tuition and Fees Tax Deduction depends on the amount of qualified tuition and related expenses paid for one's self, spouse, or dependent for whom the taxpayer can claim an exemption.

Who Qualifies?

The Taxpayer: An eligible taxpayer must file a federal tax return to claim the Tuition and Fees Tax Deduction. The taxpayer must also claim an eligible student (an individual enrolled in one or more courses at an eligible educational institution) as a dependent on the tax return. The deduction may also be for the taxpayer or the taxpayer's spouse. The amount of qualified education expenses that can be deducted through the Tuition and Fees Deduction remained level for the 2006 tax year at $4,000 for taxpayers with a Modified Adjusted Gross Income (MAGI) of $65,000 or less ($130,000 or less for married couples filing jointly). The maximum Tuition and Fees Deduction is $2,000 for taxpayers with a MAGI greater than $65,000 ($130,000 for married couples filing jointly), but not greater than $80,000 ($160,000 for married couples filing jointly). Taxpayers with a MAGI greater than $80,000 ($160,000 for married couples filing jointly) are not eligible for this deduction.

The Student: An eligible student must be enrolled in one or more courses at an eligible educational institution. An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. According to the IRS, "it includes virtually all accredited, public, nonprofit, and proprietary postsecondary institutions." Colleges can provide information on whether they meet this requirement. Students may claim this deduction for themselves if they are not claimed as a dependent by another taxpayer.

How Do You Get It?

Because Congress passed last-minute legislation to extend the Tuition and Fees Tax Deduction, the IRS urges taxpayers to use IRS e-file because software will be updated so taxpayers can easily claim this deduction. The paper form used to claim this deduction was created before the extension was passed so people using a paper 1040 must take several special steps. Taxpayers must use existing lines on the current Form 1040 and other tax documents to claim this deduction. Instructions on the paper forms contain a cautionary note to taxpayers that the legislation was pending at the time of printing.

People using a paper 1040 and claiming the Tuition and Fees Tax Deduction should follow these steps:

Taxpayers must file Form 1040 to take this deduction for up to $4,000 of tuition and fees paid to a post-secondary institution. It cannot be claimed on Form 1040A.

The deduction for tuition and fees will be claimed on Form 1040, line 35, "Domestic production activities deduction." Enter "T" on the blank space to the left of that line entry if claiming the tuition and fees deduction, or "B" if claiming both a deduction for domestic production activities and the deduction for tuition and fees. For those entering "B," taxpayers must attach a breakdown showing the amounts claimed for each deduction.

An eligible institution that received payment for tuition and fees in the 2006 tax year generally must issue IRS Form 1098-T (the Tuition Statement) to each student by January 31, 2007. The information on that form will help taxpayers determine whether they can claim a deduction for 2006.

When Is It Available?

Generally, the deduction is allowed for qualified tuition and expenses paid in 2006 in connection with enrollment at an institution of higher education during 2006 or for an academic period beginning in 2006 or in the first three months of 2007. For instance, if you paid $1,500 in December 2006 for qualified tuition for a spring 2007 semester that begins in January 2007, that $1,500 can be used to figure the 2006 deduction.

Can A Family Claim Multiple Benefits?

Taxpayers may claim this deduction along with a Hope credit, a Lifetime Learning credit, and an exclusion from gross income for certain distributions from qualified state tuition programs or education IRAs, if a different student is used for each deduction, credit, or exclusion AND the family does not exceed the Lifetime Learning maximum per family.

Taxpayers cannot take the Tuition and Fees Tax Deduction if they deduct tuition and fees expenses under any other provision of the law (for example, as a business expense).

This deduction cannot be claimed if the tuition and fees were paid with tax-free scholarships, grants (including Federal Pell Grants), or other educational assistance including employer-provided education assistance and other non-taxable benefits received to pay for education expenses.